When to Price

Most companies only set prices after they have developed a product. That is certainly a critical time and it is the most obvious. They have to finalize the price at that moment.

However, pricing should be done at many steps during the product development process and throughout the life of the product.

Before a company builds a product, hopefully they have a business plan. That business plan should include revenue forecasts. Revenue comes from units sold times price per unit. You have to know price to get to revenue. So, the product should have a price on it during the business plan stage.

Going back even earlier, pricing is also important in deciding which opportunities deserve the investment of a business plan. If we build something, will anybody pay for it? A reasonable number? The number doesn’t have to be precise, but a price estimate is important.

Another key role of pricing during the product development process is in defining the product portfolio strategy. This requires a clear understanding of the market segment(s) you are going after. What different versions should you build based on these market segments and their willingness to pay? Should you build a platform and sell complementary products?

Of course, once the product is in the market, you need to visit pricing regularly. Have competitors changed? Have markets changed? Has technology changed? Companies need to remain vigilant with their prices in the market.

So many companies set prices only after they have developed a product. Pricing is a big job. It is powerful. Yet so many companies underemphasize it.